The concept of damages varies between jurisdictions, which shall be however subject to interna-tional standards, such as those set out in the the TRIPS Agreement22. From the outset, it must be recalled that damages are mainly subject to the compensation principle, according to which dam-ages seek to “erase” the financial consequences of infringement (whether the prejudice suffered by the injured party or the unfair profits made by the infringer) and the strict equivalence between the compensation and the claimant’s damage or the infringer’s profits must be respected23. This com-pensation principle is also sometimes referred to as the “but for” test, according to which only the injury which is a "but for"consequence of the infringement must be compensated24. The plaintiff must also usually prove both the existence and the amount of its loss in a sufficiently determined and concrete manner in order to prevent the dismissal of its claim25. In addition to this compensa-tory function, damages may also have a deterrent function (e.g. depriving the infringer of his unfair profits), and in some juridictions even a punitive function (i.e. to punish malicious behavior)26. It must be also recalled that some jurisdictions provide IP-specific rules of damages, while other jurisdictions simply refer to their laws of tort. Even in jurisdictions with specific IP laws, damages did not develop in a vacuum and are subject to general rules of damages. Consequently, damages are generally governed by the “compensation principle”.
Despite the variety of damages conceptions, there are three main types of damages. The first type is actual damage, which is defined as the actual loss incurred by the claimant. Actual damage may be quantified through various ways, described below. Methods (2) and (3)below are proxies for method (1)27.
- (1) quantifying the copyright owner’s lost incurred or lost profits. This may be delicate to prove. As regards the loss incurred, the claimant must prove that there have been some
22 Art. 45 TRIPS Agreement: “1. The judicial authorities shall have the authority to order the infringer to pay the right holder damages adequate to compensate for the injury the right holder has suffered because of an infringement of that person’s intellectual property right by an infringer who knowingly, or with reasonable grounds to know, engaged in infringing activity. 2. […]. In appropriate cases, Members may authorize the judicial authorities to order recovery of profits and/or payment of pre-established damages even where the infringer did not knowingly, or with reasonable grounds to know, engage in infringing activity.“. For an analyzsis of art. 45 TRIPS Agreement, see Benhamou, 17 ss.
23 Yaniv Benhamou. Compensation of Prejudice for Infringements of Intellectual Property Rights in France, under the Directive 2004/48/EC and Its Transposition Law : New Notions? International Review of Intellectual Property and Competition Law (IIC), 2009, 126.
24 Terence, Intellectual Property Law: Damages and Remedies, New York 2000, 1 ss.
25 For Swiss law, see Chappuis, 271 ss and the several case-law references quoted thereof.
26 Benhamou, 113 ss.
27 AIPPI, Summary report, 2017 Study question on Quantification of monetary relief, 3 ss.
market disturbances, because he had to increase the public’s knowledge through advertise-ment or because the company’s goodwill diminished (sometimes also including pre-trial costs). As regards the lost profit, he must prove that there was a decline in, or a non-increase of his turnover and that, in the absence of IP infringement, he would have made those profits (e.g. that he would have sold his products instead of the infringer).
- (2) quantifying the right holder’s lost sales by reference to the infringer’s profit. This may be delicate to prove, in particular due to the causation requirement and the deductibility of costs; or
- (3) assessing a reasonable royalty. The reasonable royalty is assessed on a case-by-case basis, usually by reference to comparables (i.e. previous licensing agreements, tariffs or recommendations of the respective sectors) or to a hypothetical negotiation (i.e. based on what “reasonable parties“ would have agreed on based on all the circumstances and with full knowledge of the relevant facts)28. The principles set out in the patent-related US deci-sion Georgia-Pacific Corp. v. United States Plywood Corp., might be relevant to determine the amount of the hypothetical license fee, and is often quoted by caselaw also outside the US29.
The second type of damages is unfair profits, which refer to the profits unduly made by the infringer with the infringement of right. This may be delicate for two reasons. First, since only the profits attributable to the infringement shall be recordable, they shall be reduced depending on other factors causing that profits, such as non-infringing component incorporated into a multifac-eted device (“causation-test“). Secondly, since only the net profits shall be recordable, certain costs must be deducted from the turnover30.
The third type of damages are statutory damages, which refer to a specific type of damages provided under certain jurisdictions, according to which the court may elect pre-established amount (or increase the damages by a multiplier, usually up to three times the amount), to take account of the circumstances (such as the defendant’s behaviour before and during the proceeding and its financial conditions). The rationale for providing statutory damages is because actual damage is
28 See Jenny, Die Eingriffskondiktion bei Immaterialgüterrechtsverletzungen: unter Berücksichtigung der Ansprüche aus unerlaubter Handlung und unechter Gesch.ftsführung ohne Auftrag, Zurich/ Bâle/Genève 2005, 317: depending on the concrete needs of the parties, the reasonable royalty can be a lump-sum, a per-unit royalty, a percentage of revenues or, or a combination of the aforementioned.
29 Georgia-Pacific Corp. v. United States Plywood Corp., 446 F.2d 295, 170 USPQ 369 (2d Cir. 1971), cert.den., 404 U.S. 870 (1971), which established that the licensor’s established policy and marketing program to maintain its monopoly by not licensing others to use his invention.
30 For a discussion regarding which costs (fixed, general and/or specific costs attributable to the infringement), with reference to the jurisprudence and doctrine, see Benhamou, 100 ss.
difficult to prove31 and because the guarantee of statutory damages incentivizes copyright owners to invest in and enforce their copyrights32.
Examples of statutory damages may be found in American law which grants the court discretion in the awarding of such statutory damages in lieu of actual loss or unfair profits (within the prescribed minimum and maximum amounts of USD 200 - 150’000 per infringed work)33, using several benchmarks within the allowable range, such as the amount of expenses saved and profits reaped by the defendant, the amount of revenue lost by the copyright owner and the infringer's behaviour34. For instance, in a recent case (5Pointz), the District Court of New York ordered the landlord of a building in Staten Islend to pay 21 graffiti-artists whose works were destroyed a total of USD 6.7 million, so that the maximum amount of statutory damages had been awarded due to the infringer’s behaviour (i.e. USD 150,000 per 45 infringing work)35.
While actual damages and unfair profits are traditional in continental law systems and of a com-pensatory nature, statutory and increased damages are typical of common law systems and contain a punitive nature. However, all these damages inherently contain a deterrent effect (one can think that the unfair profits deprive the infringer of his wrongful conduct, based on idea that committing the crime does not pay) and there is a trend for continental law systems to over-compensate, so that one can speak of a shift towards punitive damages36.
I. Actual loss and overcompensation
Given the trend of overcompensation while remaining attached to the principle of compensation, it is interesting to see how such overcompensatory amounts may be legally justified.
31 Ross, 12, referring to Lauratex Textile Corp. v. Allton Knitting Mills Inc., 519 F. Supp. 730, 732-733 (S.D.N.Y. 1981) (statutory damages are appropriate when measure of actual damages is difficult to prove).
32 Ross, 12, referring to Unicity Music, Inc. v. Omni Communications, Inc., 844 F. Supp. 504, 510 (E.D. Ark. 1994) (statutory damages aim at compensating plaintiffs and deterring defendants from future infringing conduct by making it clear that infringement is more expensive than obtaining permission).
33 Section 504 Copyright Act allows the copyright owner to recover statutory damages instead of actual damages and profit, provided that he has complied with the Copyright Act's registration requirement found in Section 412 to recover statutory damages and if he has not already been compensated for the infringement through another cause of action, such as breach of a contractual prohibition on reproduction and distribution.
34 See Ross, 12 ss.
35 Jonathan Cohen et al. vs Gerald Wolkoff et al., Case No. 13-CV-05612(FB)(RLM): Considering that the defendant and owner of the building (Gerald Wolkoff) has not given the artists 90 days’ notice to allow them the opportunity to salvage their works, did not take any preservation measures, and that the destruction “was an act of pure pique and revenge for the nerve of the plaintiffs to sue to attempt to prevent the destruction of their art“.
36 Benhamou, p. 113 ss.